Tax help for domain names

[burgerman]

Hi guys, I'm hoping you can help me out regarding 3 questions I have about taxes and domain names:

1) Hypothetically, if I bought a domain name 2 years ago and decide to sell it in 2008 for a profit on the aftermarket, what type of income would this be regarded as?

2) If I parked my domain name using Sedo and I'm making money from PPC, what type of income would this be regarded as?

3) Can I make tax deductions equivalent to the amount of my domain renewal fees? Eg if I pay $500 a year in renewal fees, can I use this to my advantage on my tax return?

Thanks in advance

 

[tldrental]

I'm chiming in because I want to subscribe to the answer of this question. Good questions!!

 

[Adapt Web]

I see you're from Canada.. not sure how it works there, but in the USA, #3 is a yes.. domain renewals would be a business expense, thus deductable.

 

[Theo]

Assuming that Canada tax law matches that of the US:

1. Capital gains (general US rate is 15%)
2. Ordinary income.
3. Renewal fees count as expenses to their full amount.

Talk to a CPA for all such matters.

 

[strongvis]

DomainTaxGuide.com has a good book on the matter

I wouldn't think the concepts would be too different up north in canada.Good luck

 

[ck89102]

I concur.
http://www.domaintaxguide.com/ is the Domainer's Income Tax Bible.


Very thorough, easy to read/understand. I think it is a must.

 

[Domagon]

In my view, renewal fees for a domain being treated as a fixed asset should be applied to its cost basis...

Ie. example.com purchased for $10 and thus its inital cost basis is $10, but then a year later is renewed for $10 ... now its cost basis is $20. Later that 2nd year it's sold for $500 ... $500 - $20 = $480 capital gain. This is the most simple way, and how many domainers do it ...

Some folks depreciate domains too, but that can be froth with problems and adds complexity - may not be best strategy depending on the situation.

While expensing the renewal fees isn't necessarily wrong, it may not be the ideal way for your situation - if one chooses to expense renewal fees (some also expense the initial reg fee too), it's important to always be consistent about doing so for all domains.

As with most things tax related, there's often no one right answer - even the IRS doesn't have one for many things, such as whether domains should be treated as fixed assets (despite them being intangible) or inventory or something else; it all depends.

Ron

 

[radioz]

I thought that a domain sale was simple income (sale-expenses) and that parking was simply income. Is the domain sale itself subject to capital gains or regular tax rates?

 

[Focus]

From what I have learned and been told - the manner in which you treat the domains depends on whether or not your primary business is buying and selling domains (i.e. inventory) or parking them or development for profit (advertising expense)..and that that is fully determined by your income path (i.e. how you make money) If you are parking names for profit and dealing with large amounts of money like some of us are then it is most beneficial to treat the domain cost as an "Advertising Expense" The easiest way to do this is to deduct the full expense of the domain name purchase (or registration) against any revenue it earns so that you are only taxed on the profit margin for that said domain. For instance, you buy a traffic domain name for the purpose of parking for income, so you are buying it and paying for online advertising from it's traffic..the name makes $2k per year and you just paid $5k for it, so you would deduct the $5k you paid off your total domain income that year for ONLY that same year in which the domain name was purchased. Thereafter you can only claim the renewal fee's as an expense. Right now, there are not really concrete domain name tax laws but they are coming soon!
Hope this helps, good luck!

 

[Theo]

I thought that a domain sale was simple income (sale-expenses) and that parking was simply income. Is the domain sale itself subject to capital gains or regular tax rates?

For a qualified response, consult with a CPA.

For my business, a separate holding entity manages the domains. For any domain held for 1 year + 1 day, capital gains are exercised on the net income (sale price minus acquisition price). For sales less than a year after a domain was acquired, taxation occurs at ordinary income rates.

 

[Rockefeller]

Also remember that it helps to form an LLC around your domain company. Right now I have one corporation and two LLCs that all do different things. There are alot of things that are deductible, from renewal fees, brokerage fees, conference passes, travel expenses to get to the conferences, escrow fees, paypal fees, etc.

 

[Focus]

Follow one rule...deduct everything and keep records...don't be afraid to use the tax code! Most importantly, PAY YOUR TAXES!

 

[JCDyer]

Received. Never mind or thanks, which ever applies ;-)